A friend of mine took a home loan a few years back. At that time the interest was real low. So he chose the floating rate option. However slowly his bank started moving the interest rate northwards and my dear friend kept on increasing his tenure for repayment.

I am sure some of you must have done the same. Now let’s see what happens when you increase the tenure of a loan.

Example:

Borrowed amount = 50,00,000/-

Interest rate = 10.5%

Monthly payment = 55,270/- with a tenure of 15 years

Now let’s see what happens if the interest rate is increased by a mere 1% to 11.5%

Borrowed amount = 50,00,000/-

Interest rate = 11.5%

Monthly payment will be 58,409/- if you choose to pay within 15 years. So that way you will pay 3,139/- extra per month. However if you extend 15 years to 17, then your monthly payment will be 55,905 which is just 635/- extra. Now this is what most of you do and I want to show how you get robbed.

If you would have paid in 15 years you would have paid a total of 1,05,13,620/- . But since you are paying in 17 years you will pay 1,14,04,620 /-. So that’s an extra 8,91,000 /- that you will end up paying.

So if you want to save this money you will have to tell your banker to keep the tenure of the loan fixed and increase the monthly payment as banks usually tend to increase the duration of your loan automatically when there is a hike in interest rate.

In case the interest rate is lowered tell your bank to decrease the duration of the loan and not the monthly payment.

If you think this topic is helpful please send us your vote by liking our facebook page.